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Mises's Words

January 15, 2004

Salerno draws our attention to Mises's very clear discussion of Ricardo's assumptions regarding capital and labor mobility, and how the law of comparative cost makes the case for free trade even when Ricardo's restrictive assumptions do not hold, as they have not held since the late 19th century:

Ricardo,. however, starts from the assumption that there is mobility of capital and labor only within each country, and not between the various countries. He raises the question what the consequences of the free mobility of products must be under such conditions. (If there is no mobility of products either, then every country is economically isolated and autarkic, and there is no international trade at all.) The theory of comparative cost answers this question. Now, Ricardo's assumptions by and large held good for his age. Later, in the course of the nineteenth century, conditions changed. The immobility of capital and labor gave way; international transfer of capital and labor became more and more common. ...[T]he teachings of the classical theory of interregional trade are above any change in institutional conditions. They enable us to study the problems involved under any imaginable assumptions.

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